Economics

Economics: Chapter 15 Unit Plan: Money and Banking Charles Martindell Belpre High School 11th Grade 8th Period Education Standards: Benchmarks: Economics: B. Identify factors which inhibit or spur economic growth and cause expansions or recessions. D. Analyze the role of fiscal and regulatory policies in a mixed economy. E. Explain the use of a budget in making personal economic decisions and planning for the future. Social Studies Skills and Methods: B. Critique data and information to determine the adequacy of support for conclusions. D. Work in groups to analyze an issue and make decisions. Indicators: Economics: 3. Explain the impact of inflation on economic behavior. 4. Describe the functions of the components that make up an economic system and describe the relationships among them including: a. Business; b. Productive resources; c. Financial institutions; d. Government; e. Consumers. 5. Identify factors that cause changes in economic growth including the effects of supply and demand on the labor market. 6. Identify indicators that provide information to consumers on the current value or purchasing power of money with a focus on the: a. Consumer Price Index; b. Unemployment rate; c. Gross Domestic Product (GDP). 10. Analyze issues related to the use of different types of taxes to fund public goods and services including: a. Proportional tax; b. Progressive tax; c. Regressive tax. 13. Explain the consequences of the economic choices made by individuals and the tools which they use to manage their financial resources including: a. Budgets; b. Savings; c. Investments; d. Credit; e. Philanthropy. 14. Describe how interest rates affect savers and borrowers. Chapter 15: Lesson 1 Objectives: The students will learn about the three functions of money, and why it is necessary to have money in a complex economy. Methods: Students will participate in an interactive lecture, in a question-and-answer format, to get an introduction of what money is today and why it’s important. They will then participate in an activity that illustrates the Barter System. Day 1 - Chapter 15 - Section 1 Seating Chart, Attendance, and Self Intro/Expectations – (5 min) Opening – (5 minutes)  Historical types of money – tobacco, shells, animals (cattle), rice, salt, corn, precious metals, whale teeth…  Barter system (small, simple economies only)  double coincidence of wants  Money – anything customarily used as a medium of exchange, unit of accounting, and/or a store of value. Lecture – (10 minutes)  Money – 3 different functions o Medium of Exchange.  Sellers will accept it in exchange for a good or service  Bartering o Unit of Accounting  Measure of value (yardstick that compares value of G&S in relation to one another)  Keep good records (important for businesses…especially small ones)  Each country has their own base unit of accounting (US – dollar, Japan – Yen, England – Pound, France Euro)  Allows you to look for better bargains o 1 brand is $5 more than another, but close in quality. What’s the better value? o Store of Value  You can sell something, and store the profit you make from that sale to be able to use it at a later date.  Barter system, you give them your thing, they give you their’s, end of transaction.  Paycheck comes in once a week, or every 2 weeks, or month. People set up checking/savings accounts to keep their money until they need it.  Money today o No more cattle or gems (commodity money – has additional value as a good), now it’s paper money (no more gold standard *REVIEW*)  Fiat Money – money that’s value is declared by the gov’t  (Legal tender from the government)  Gov’t says this is worth something, everyone accepts it as valuable because they have faith that all others will accept it too. Barter Activity (25 minutes) Conclusion and Wrap-up (5 minutes) Chapter 15: Lesson 2 Objective: The students will learn the characteristics of money, the history of the banking system in the US, and the current state of the banking system. The focus of the lesson will be the responsibilities involved with technology and the risks associated with electronic banking. Methods: The students will be engaged in an interactive lecture in which they are constantly called on to think of examples or questions that help tie in the material with their everyday lives. Day 2 - Chapter 15 - Section 2 Attendance – (5 min) Opening/review (10 min)  What did we learn yesterday? o What were some early forms of money? o Medium of Exchange – Who can think of an example? (Using cash to buy a CD or clothes or anything.) o Unit of Accounting – Measurement of the value of a good. Each country has a basic unit to measure the value of a good (ie – Oh that car is worth $25,000) Who can think of an example of money used as a Unit of Accounting? (Businesses can keep track of how much they earned (ie – Microsoft made $40 billion in sales last year). Consumers can look for bargains based on how much something costs. o Store of Value – Who can think of an example? (Making money at your job, but saving it to spend later) o What is commodity money? Representative money? o What is fiat money? (Legal Tender?) What is an example of Fiat Money in the US? (dollar) In Japan? (yen) In England? (pound) France? (Euro) Is England in the European Union? Why didn’t they take the Euro? o Why is money necessary in today’s economy (compared to Barter System)?  Yesterday’s activity: How many groups found a double coincidence of wants? How many found the coincidence that something you needed was not for sale? How would money have made it easier?  Banking system survey (who has a checking account/savings?) o What does it allow them to do? Special services (overdraft, etc) Lecture (30 minutes)  Section 1 Catch-up (Money Characteristics) o Money must be: durable, portable, divisible, stable in value, scarce, and accepted.  Durable: what does it mean to be durable?  Withstand wear and tear (avg dollar = life of 1 yr) o Treasury Dept will replace damaged bills of over ½ of it clearly survived.  Portable: what does it mean to be portable?  Carry it around easily  Divisible: what does it mean to be divisible?  Must be able to divide easily to pay for any priced item (pennies)  Stable in value: what does this mean and why is it important?  Its worth can’t change rapidly…if it did, it wouldn’t work  Scarce: What does it mean to be scarce? Not just definition…what does it mean for money.  Not much of it = valuable (supply and demand)  Accepted: Must be accepted by everyone as a Medium of Exchange  American Money and Banking o Early troubles: “Bills of Credit” were issued during Revolutionary War to be able to pay debts  so many were issued that their value plummeted and became worthless  Worked great for the first few years, but depreciation set in and confidence in the Bills of Credit plummeted. o Ultimately….$200,000,000 worth of Bills of Credit were issued….but the actual value of non-paper money that backed it up was $6, 367,719  1788: The Constitution gives Congress the sole power to mint coins. o Why is this important?  The federal gov’t made reforms throughout the next century on the money printing system before it finally settled on today’s system. o Ralph Nader?  Depreciation of paper money also happened to Germany during the Great Depression. o Banking services  Banks today offer a lot of services (checking accounts, interest on checking, automatic deposit/payment, storage of money, transfer of money from 1 person to another, overdraft checking)  Overdraft checking – lets customer write a check for more than they have in their account (like a loan) o Usually VERY HIGH INTEREST (only use in extreme emergency)  Savings Account – only for storing money. You CAN NOT use checks to take money from your savings account.  These services are pretty standard across the country, but exact conditions vary by state. o Electronic Banking  Electronic Funds Transfer – put money from one account to another electronically (no paper involved)  Doesn’t make an impact on us, but it is extremely significant from a historic perspective  It’s like going from gold to paper and still having it be valuable…now it’s paper to numbers.  ATMs – very common now…  Mostly used to withdraw from checking…but can also deposit, and look up to see how much you have in your account. o Is this free? (service fee is charged in certain situations)  Identity theft  Computers are potentially visible to anyone. Depending on the company, the customer can be responsible for all money stolen via identity theft. o Many companies offer plans to help keep this from happening now.  Identity theft commercials. o Take every precaution to prevent this. Most online shopping sites are secure, but be careful. Never reply to emails from company’s that ask for your social security #, credit card #, or other personal information unless you are 100% sure it is from your bank or whatever company  you’re using  “Paypal” emails  Electronic Transfer of Funds Act o Describes the rights and responsibilities of participants in EFT systems. o If your card gets lost stolen and you report it within two days, you are only responsible for $50 in losses. If you wait longer than 2 days to report it, you could be responsible for as much as $500. Conclusion/evaluation (5 min)  What are the 6 characteristics of money?  Who has the power to mint our money and why is that important?  What are some standard banking services?  Why is the Electronic Funds Transfer significant? How is it dangerous? Chapter 15: Lesson 3 Objective: The students will learn about the difference between money and near money’s and learn about examples of each, as well as the different methods to measure money supply. The main two points of the lesson will be on the banking system and its ability to create money, and on proper credit card use. Methods: The students will be engaged in an interactive lecture in which they will come up with relevant examples and explanations of the day’s material. They will then participate in a stock market game in which they check the progress of their stocks and decide if they want to buy/sell. Day 3 - Chapter 15 – Section 3 Attendance (1 min) Opening/Review (5 min)  What did we learn yesterday? (6 characteristics of money, banks and services, identity theft).  What are some different types of money? (Besides just cash paper money) Lecture (25 min)  Money and Near Moneys o Currency – “real” money (cash and coins)  The material used to make a coin is cheaper than the coin is worth  A quarter is made our of copper and nickel, and if you melt it down (which is illegal), the worth of the metal you have in a puddle is less than 25 cents o Checks  Checking accounts  With a checking account, you can withdraw money that you have deposited into a bank by writing checks. o When you go to the bank to cash in a check, they are required to give you the amount on the check.  Obvious? Maybe…  Reserve requirements – banks are only required to keep 3%-10% of money given to them.  If you deposit $100 into a bank with a reserve requirement of 10%, they are allowed to loan $90 of that to someone else (banks create money so to speak). o That person then deposits that $90 into a different bank, and the new bank can loan $81 to someone else.  The bank just created $171 o What happens if everyone went in and withdrew all their money?  Has that happened before?  Federal Deposit Insurance Corporation o Credit Cards and Debit Cards  Debit Cards  It automatically withdraws money from your checking account o When you pay for something from a store, it instantly takes it out of your bank account.  Usually is tied to a credit card company, allowing you to use that debit card at any place that accepts that company’s credit cards (MasterCard, Visa, etc)  Stores have to pay a certain percentage from every credit card transaction to the credit card company (usually 30-50 cents per transaction)  Why should they accept credit cards then?  Credit Cards  If you have a credit card with a limit of $500 month, then that basically means you get an additional $500 every month that you can use if you need it (emergencies, bills, etc.). Right? o WRONG!!!! o Credit cards do NOT give you money!! If you only have $300 in your bank account, do NOT spend more than $300 on your credit card or you won’t be able to pay it off when your bill is due.  Think of a credit card as borrowing money from yourself (from your bank account). Always keep enough in your bank to pay back your entire bill immediately. It’s best to use your card EXTREMELY sparingly (especially if you only get $300-$500 /month. That way you’ll have enough for emergencies (car breaks down, medical expenses, etc.)  My car broke down and I didn’t have much money left on my card for the month… o Minimum payment = maximum loss of money  Credit cards allow you to make a “minimum payment” on your bill. Last month, I owed $263, but the minimum payment they required me to make was $17. That means the rest of the $ would carry over onto the next month’s bill, and I would get charged interest.  When you pay only the minimum payment, they charge you interest on everything that gets carried over onto your next month’s bill. If you pay ALL  of the money you owe (ignoring the minimum payment), you don’t lose any extra money from interest. That’s how you build up good credit…by paying everything off when it’s due. Only paying the minimum quickly gets your debt out of control and gives you bad credit….plus the credit card company makes lots of money off you from your interest. Paying it all off right away means they don’t make any money off of you at all.  Be the kind of customer the credit card companies hate! Pay off your bill all at once. Near Moneys o Not quite money…but their value is stated in terms of money, and have high liquidity compared to other investments like stocks.  Savings accounts and time deposits are both near moneys.  The Money Supply  M1 vs M2 o M1 – narrowest definition of money supply (moneys that can be spent immediately… currency, traveler’s checks, and checkable money supply. o M2 – includes all of M1, plus near moneys like mutual find balances and savings deposits. Stock Market Game (Rest of class time) Day 4 - Chapter 15 – Review Attendance (1 min) Discuss Bonus Question on Exam (5 min) Review Game (rest of class time) Day 5 - Chapter 15 - Exam 